Q: Suppose a country can produce either 100 units of wheat or 200 units of corn with its available resources. If it chooses to produce 50 units of wheat, what is the opportunity cost in terms of corn?

$$\text{Opportunity cost} = \frac{200}{100} \times 50 = 100$$ units of corn

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next-best alternative that is forgone when a choice is made.

Question 2

Suppose a country can produce either 100 units of wheat or 200 units of corn with its available resources. If it chooses to produce 50 units of wheat, what is the opportunity cost in terms of corn?

Accepted Answer

$$	ext{Opportunity cost} = \frac{200}{100} 	imes 50 = 100$$ units of corn

Question 3

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Government sets the price for goods

Question 4

If the price of a normal good increases, what happens to the quantity demanded, according to the law of demand?

Accepted Answer

It decreases

Question 5

A shift to the right in the demand curve for a product could be caused by:

Accepted Answer

An increase in the price of a substitute good

Question 6

Which of the following statements about comparative and absolute advantage is correct?

Accepted Answer

Absolute advantage compares productivities, while comparative advantage compares opportunity costs.

Question 7

If Liz can produce 40 smoothies or 40 salads per hour, and Joe can produce 6 smoothies or 30 salads per hour, who has the comparative advantage in salads?

Accepted Answer

Joe, because his opportunity cost of producing a salad is lower.

Question 8

A price ceiling set below the equilibrium price will most likely result in:

Accepted Answer

A shortage of the good

Question 9

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the maximum price a consumer is willing to pay and the actual price paid.

Question 10

Suppose a $$1.50 tax is imposed on sellers. The price buyers pay rises by 1.00$$, and the price sellers receive falls by $0.50. Who bears the greater incidence of the tax?

Accepted Answer

Buyers, because they pay a higher price.

Question 11

Which of the following is a public good?

Accepted Answer

A lighthouse

Question 12

A negative externality in production, such as pollution from a steel mill, will result in:

Accepted Answer

Too much of the good being produced and a lower price than socially optimal.

Question 13

According to the Coase Theorem, private bargaining can solve externality problems if:

Accepted Answer

Property rights are well defined and transaction costs are low.

Question 14

If the price elasticity of demand for a product is $$E_P = 0.5$$, which of the following is true?

Accepted Answer

Demand is inelastic and a price increase will increase total revenue.

Question 15

Which of the following would make the demand for a product more elastic?

Accepted Answer

The product has many close substitutes.

Question 16

If the cross-price elasticity of demand between two goods is positive, what does this indicate?

Accepted Answer

The goods are substitutes.

Question 17

A deadweight loss from a tax represents:

Accepted Answer

A loss of total surplus that is not offset by tax revenue.

Question 18

Which of the following is an example of adverse selection?

Accepted Answer

A person with poor health is more likely to buy health insurance.

Question 19

If the income elasticity of demand for a good is negative, the good is:

Accepted Answer

An inferior good

Question 20

Which of the following best describes allocative efficiency?

Accepted Answer

Producing the combination of goods and services that maximizes society's welfare.

Microeconomics: Foundations, Production, Efficiency, and Market Dynamics

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